Apparently stung by lukewarm response last week to its Microsoft Live software-as-a-service announcements, Microsoft Corp. Wednesday released two internal memos written by Chairman Bill Gates and Chief Technology Officer Ray Ozzie. The documents sought to demonstrate that the company has a far-reaching vision to respond to this latest market challenge.
Microsoft announced its Windows Live and Office Live, which are suites of Internet-based search, communications, security, information, presence and collaboration services.
However, industry analysts were also surprised last week when Microsoft disclosed that it was not going to introduce Microsoft CRM 3.0 as a software service to counter a growing number of competing hosted customer relationship management companies led by the likes of Salesforce.com, NetSuite Inc. and Siebel Systems Inc.
Instead, Microsoft officials said it will allow industry partners to offer CRM 3.0 as a hosted service. That prompted some industry observers to question whether Microsoft was turning a blind eye to an important business trend. They also questioned whether Windows Live and Office Live were a strong competitive response to the challenges posed by Google Inc. and Skype Technologies S.A.
Gates, in his memo, said the “coming services wave will be very disruptive. We have competitors who will seize on these approaches and challenge us.” Microsofts goal will be to “build our strategies around Internet services and we will provide a broad set of service APIs and use them in all of our key applications.”
In his 5,000-word memo to Microsoft employees, Ozzie concedes that Microsoft missed opportunities to seize the initiative in key technologies that supported the development of the software-as-a-service business model and presented an outline of the strategy the company will follow to try to catch up.
“We knew search would be important, but through Googles focus they have gained a tremendously strong position,” he wrote. The RSS news feed protocol and the dominance of Adobe PDF as an Internet file distribution format were also cited as missed opportunities.
Ozzie said there are three key tenets that Microsoft intends to embrace as it responds to basic shifts in the industry landscape that are all related to online services and advances in Internet and computer technology.
“The power of the advertising-supported economic model” will provide a new way to “directly and indirectly fund the creation and delivery of software and services,” he wrote. Ozzie contends that its possible “to obtain more revenue through the advertising model than through a traditional licensing model.”
The Internet is driving a “grassroots technology adoption pattern” that is changing how products are marketed both in consumer and enterprise markets. “Its now expected that anything discovered can be sampled and experienced through self service and exploration and download,” he wrote.
With all the computing device forms that are available, such as desktops, laptops, PDAs, cell phones and set-top boxes, people expect to get “integrated user experiences” where everything “just works,” Ozzie observed in the memo.
To respond to these tenets and customer demands, Ozzie stated that Microsoft will focus on delivering highly integrated, “seamless” technologies and services that strive to give customers what they want, when they want it. Microsoft will strive to provide a seamless experience in just about all of its product areas, including operating systems, entertainment, communications, productivity, marketplaces, IT management and business solutions.
But Can Microsoft Execute
on Its Plan, Competitors Wonder?”>
Ozzies memo contains a lot of good ideas, but they are mostly five year old ideas that already are being implemented by other companies, said Denis Pombriant, principal analyst with of Beagle Research Group, a CRM market research firm in Stoughton, Mass.
“Some of what Ray Ozzie writes about, like the seamless OS, seems like a page right out of Salesforce.coms” business plan Pombriant said.
“Generally all of the ideas about seamlessness are good and important,” he said. “He is right that products need to just work. People are just tired of one device that doesnt work with another; or having to dump a lot of brain cells into figuring out how to make data flow between your PC and your PDA,” said Pombriant.
Now the question is whether Microsoft is going deliver innovative products that solve these problems, he said.
“But we used to look at Microsoft as an innovation hub. What we have gotten from them over the last month or two is that they have become big followers and in some cases they are playing catch up,” said Pombriant.
It remains to be seen if Microsoft wealth in money and development talent will make it a leader in the field of software as a service, he said. “If catching up is a matter of throwing money at the problem they will be able to do it,” Pombriant said.
However, Microsofts competitors in the on-demand software services sector question whether the software giant will demonstrate the level of agility and flexibility that Ozzies memo calls for.
“Companies like Microsoft have plenty of cash, and arguably some of the most beautiful minds in the business working for them,” said Marc Benioff, CEO of Salesforce.com, a fast-growing provider of on-demand CRM services based in San Francisco.
“But Microsofts business is not tuned to the realities of a new world that is not based on two- and three-year upgrade cycles and lucrative maintenance contracts,” Benioff said.
Microsoft may find itself struggling for relevance in the online software services era, just as mainframe software companies struggled to stay alive when enterprises started shifting to PC-based client/server software products, he said.
Microsoft will likely find that it is harder for it to catch up in the on-demand business application market than it was in the browser business, said Zach Nelson, CEO of NetSuite Inc., which markets a suite of hosted CRM, order fulfillment, inventory management and finance applications.
“As far as software as a service goes, they are in a pretty tough situation because they have a lot of catching up to do,” he said. Nelson contended that aside from its Outlook messaging application, building enterprise business applications is not Microsofts strong point, noting that it bought the accounting, finance and enterprise resource planning applications development by Great Plains Software, Navision and Axapta.
Microsoft CRM is homegrown, but that has yet to prove a success in the market, said Nelson.
“Unfortunately it is probably six years after they should have gotten religion” about the importance of software as a service, Nelson said. NetSuite has spent most of the past six years developing its application services. Even with all of its resources Microsoft will find it isnt easy to develop a comparable application suite from scratch, he said.
Editors note: This story was updated to include the comments of Denis Pombriant, Beagle Research Group principal analyst.